The Returns to Best Management Practices: Evidence from Early Proposals for Nutrient Trading in the Chesapeake Bay Watershed

Abstract: This paper examines the effectiveness of a proposed nutrient offset trading
market at increasing adoption rates of best management practices (BMPs) in the
Chesapeake Bay Watershed. The analysis incorporates real agronomic data collected
from farms on Maryland’s Eastern Shore to accomplish three study objectives: (1)
derive the farms’ demand to adopt BMPs; (2) determine the heterogeneity of nutrient
reductions for various farms; and (3) estimate the likely participation in the proposed
program. Seventy-seven low-load fields were entered into the Maryland Nutrient
Trading Tool where reductions were calculated from the planned installation of four
management practices: Forest and grass buffers, decision agriculture, and land use
conversion. Estimated costs of BMP adoption and credit values were applied to
generate net benefits of adopting a BMP in the offset trading market, from which
participation was then estimated. The results showed the trading tool creates
heterogeneous reductions in nutrient loadings. Second, the incentives derived from the
program are only likely to incentivize riparian buffer adoption, a practice that is likely
already fully incentivized. This may lead to low participation rates within the program.
Finally, adoption rates could be increased through the incorporation of unmeasured
and additional benefits, though doing so could create a distortion within the market.